Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Alyssa Royse
At some point in every startup, things start going wrong. All of the rapid pivots and course corrections and panic make it not fun at all. More than that, people around you may be behaving in a way that is just plain wrong, and you’re stuck in the middle, wondering what to do.
My favorite hyperbolic examples, of course, are the scandalous stories at MOD, Count Me In and Intellium, (though I’ll never get tired of pointing out the inane antics of Earth Class Mail, which may not have been criminal, but were certainly unethical.) In every one of those cases, people were watching things go wrong, and didn’t know what to do. But we all face it, in less dramatic ways, all the time. From promises that are unrealistic to treatment of people that is unethical.
All of this can be extra messy in startups because we are often working with our friends, or because we want to be part of “the next big thing” with someone we think of as a startup celebrity. Our emotions get in the way of our decision-making.
So, when the going gets rough, who do you turn to? Who do you work for?
Who Do You Work For?
I think there are a couple answers to this question, depending on where you are in the fundraising / launch cycle.
Pre-money, you work for the idea.
- You don’t work for the founder, you work for the idea. The goal of the company is NOT to make the founder rich and famous, it is to get the idea to market.
- At every fork in the road, you ask yourself, “will this get us to market?”
- As you gear up to raise money and hire a team, the idea and execution plan have to be solid enough that you are not misleading anyone, so develop the idea.
Post-Money, you work for the investors and the team.
- Anyone who has invested time and money has done so because they believe in the idea.
- If someone is making decisions that are unethical, illegal or totally foolish, you have to think about the investors, because you work for them now. Ask yourself, “can I look an investor in the eye and defend this decision?” Whether it’s exaggerating income, committing funds that don’t exist yet or buying talking toilet seats, if you don’t feel like you can tell the investors about it, then it’s wrong.
- If you are still raising money, and think you’re on shaky ground, you may also be on illegal ground. You have a fiduciary responsibility to the investors, and hell hath no fury like an investor scorned.
Who Do You Turn To?
This is the tough part, no doubt. It is extra hard in startups because, many times, the board and investors are all friends of the founder, which gets us into the Cult Of Personality mess. But, if your belly voice is telling you something’s wrong, and you feel like a kid, alone, in a dark forest filled with hungry wolves, seek counsel, fast.
- Try to address the situation at the source, first. Ask questions, don’t make accusations.
- Explain the situation to someone who does NOT work in the company, a smart, trusted person, just to make sure you’re not overreacting.
- Turn to the board. The job of the board is to make sure that the company is protected at all times. In theory, anyway. However, many times, the board is just the founder, one friend and one employee…. This is a HUGE red-light in the first place. (Never invest in a company in which this is the case, or join one. If a founder is “afraid” to have truly neutral people who could out-vote him / her on the board, then you have a BIG problem!) If the board is unresponsive, or counter productive, move on.
- Turn to the corporate attorney. The simple truth is that the attorney must follow the letter of the law, and is the person least likely to buckle under the pressure of starry-eyed vision.
- Put your concerns in writing, CC counsel, and board. HOWEVER, once you do this, you must be willing to act, one way or another, on your concerns so as not to knowingly behave unethically yourself. This way, no one can lie about what YOU said and what YOU did.
At the end of the day, you have to live with yourself. When all else fails, if I don’t know what to do, I imagine myself, years from now, explaining the situation to my daughter. If I can feel good about what I would have to say to her, then it’s good. Follow your own ethical compass and trust that the community will support you, because it will.
